Tag Archives: Banks

article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

US Senate majority leader, Harry Reid spooked US markets with his comments that Fiscal Cliff negotiations had made “little progress”. Thanks Harry. The positivity of the Greek deal yesterday failed to excite Wall Street despite the stronger lead from Europe ending in another night of cliff induced vertigo. The XJO, like other Asian markets struggled to gain much traction and despite a push higher over the last few hours of trade, finished in the red down 9.5 points or 0.21% to 4447.

(For a more comprehensive summary of last night’s market action see FNArena’s Overnight Report.)

We need to keep in mind that volumes are still extraordinarily light in Australia and offshore and that it doesn’t take much market influence (a mediocre portfolio buy or sell) to sway the market in either direction. Today the ASX turned over $3.8B worth of stock. We were buyers of the ANZ Bank ((ANZ)) yesterday as the short term technicals look interesting as well as the completion of the company’s DRP selling meant the stock should find support here. This was the first time I really took notice how little genuine volume was actually being put through the market. I, one retail broker feeding lines of stock that could hardly be considered substantial, were causing Algos (Algorithmic Trading Systems) to jump around in a global bank with a market cap of $64B. Go figure. When 30% of the entire turnover based on value can be attributed to Algos this means only 70% of the volume going through the market on most days is actually a result of investors buying or selling positions. What this means is that without the Algos (I am not promoting their use by any means) there would be VERY little activity in our market and that the lack of volume means price action is becoming less reliable as an indicator of market sentiment.

The ACTUAL news last night was the positive US economic data, Greg went into detail on this this morning but the fact the market chose to trade Harry’s useless comments instead of recognising the continuing positive trend in the US recovery. This is the real issue after all isn’t it?

The ABS posted its Q3 read for construction activity which showed an advancement of 1.7% which was bang on the consensus target. The market barely took notice given it was largely inconsequential.

Mining services company NRW Holdings ((NWH)) was the big mover of the day after comments at the company’s AGM warned the market to expect a decrease in profit in FY12. NWH closed the day down 17.8% to $1.48.

Aristocrat Leisure ((ALL)) posted a 70% increase in FY12 profit, following the broader trend in gaming stocks recently and finished the day up 6.6% to $3.05.

BHP Billiton ((BHP)) staged a nice recovery to close close to its highs at $34.00 after being down as much 41c. Rio Tinto ((RIO)) copped the brunt of the miners’ selling and closed down 1.9% to $56.70.

DOW futures are pointing to a slightly more negative lead, currently down 9 points.
 

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no costconsultation and portfolioreview or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We can only assist investors who are classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

A news release before market that an agreement had been reached on the provision of Greek aid sent positive waves through the market early on following a weak lead from offshore overnight. The XJO had a strong uptrend in the first couple of hours before bouncing sideways for the afternoon. We managed to hold the gains however and finish the day up 32 points or 0.74% to 4456 points on a strong volume where $4B worth of stock changed hands. $1.2B (30%) of this went through in the last half of trade just as US futures made another run higher. Some bigger players getting set in anticipation of a Santa Rally?

The deal with the Greeks is as follows: The IMF has given Greece an additional 15 years to repay their outstanding loans however, creditors to the country have refused to take a haircut on their loans. The agreement aims to cut Greece’s debt to GDP by 124% by 2020 and will allow Greece to receive loan payments of 44B euros that will be paid in three instalments. Other actions included a cut in interest rates and an extension of loan maturities. Greek bonds had been rallying on the past week as traders anticipated this outcome. Hopefully that will put Greece at the back of everyone’s mind once again.

The euro news gave the market an upbeat tone from the get-go and coupled with a positive announcement from CSL Limited ((CSL)) (updated profit guidance) got investors feeling good after weeks (feels like months) of uncertainty. CSL hit an ALL TIME high today and was up 6.9% at the close to finish at $50.01. This story has been building and building and is not really a surprise but is a stellar result nonetheless. 

The miners moved up nicely with BHP Billiton ((BHP)) closing up 0.5% to $34.20 and Rio Tinto ((RIO)) up 1% to $57.78

DRP selling from Australia and New Zealand Banking Corporation ((ANZ)) and the National Australia Bank ((NAB)) finished today and both banks had a nice move, ANZ in particular was strong all day and closed up 1% to $23.81, NAB closed on its highs up 0.55% to $23.83.

In news just out, there are murmurs out of China that they will revise the annual contract pricing mechanism on coal imports. If you can recall what happened to Iron ore when Kloppers threatened the Chinese with this back in 2009 (the price of iron ore and iron ore stocks went nuts) then we need to keep a close watch on our coal exporters tomorrow. 

DOW futures are pointing to a stronger day in the US, currently up 21 points
 

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.
 

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no cost consultation and portfolio review or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We cannot assist investors who aren’t classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Picking A Bottom For Westpac

By Michael Gable 

The market has had its relief rally as predicted, but the big question is whether it can continue higher or not. Most believe it will, however I am still cautious of our market taking another step back.

There are few opportunities however on the long side which include Challenger (CGF) and Paladin (PDN). Axiom Mining (AVQ) is a very interesting technical trade that could see a doubling of the share price, but its not for the faint hearted. I have also looked at possible downside targets for Westpac ((WBC)) and Fletcher Building (FBU).

Westpac

I spoke about the banks briefly last week and I covered off on my targets for ANZ. Here we look at WBC, and on the weekly chart we can firstly see the type of divergence with the RSI that led to the stock peaking around $26. There appears to be an obvious support level at $23. Also if we measure the 50% retracement of the May–October rally (which is where a stock can often retrace to), it also brings us back to $23. So $23 appears to be strong support, but an unlikely breach of that level can see it down towards $21. 


Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
 
Visit Michael Gable's website at  www.michaelgable.com.au/.

After leaving Macquarie Bank's Securities Group in 2008 after many years of service, Michael has gained a highly regarded reputation in the financial services industry. As a Private Client Adviser with Novus Capital, Michael has become a popular live commentator and analyst for Sky News Business Channel’s “Your Money, Your Call” program. He is also the author of the weekly stock market report “The Dynamic Investor”.

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management.

Michael deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Michael Gable is an Authorised Representative (Rep. No. 376892) of Novus Capital Limited AFSL 238168 ACN 006 711 995. Michael Gable and Novus Capital Limited, their associates and respective Directors and staff each declare that they, from time to time, may hold interests in securities and/or earn brokerage, fees, interest, or other benefits from products and services mentioned in this website. This website may contain unsolicited general information, without regard to any investor's individual objectives, financial situation or needs. It is not specific advice for any particular investor. Before making any decision about the information provided, you must consider the appropriateness of the information in this website or the Product Disclosure Statement (PDS) or Financial Services Guide (FSG), having regard to your objectives, financial situation and needs and consult your adviser. Any indicative information and assumptions used here are summarised and also may change without notice to you, particularly if based on past performance. Michael Gable and Novus Capital Limited believes that any information or advice (including any securities recommendation) contained in this website is accurate when issued but does not warrant its accuracy or reliability. Michael Gable and Novus Capital Limited are not obliged to update you if the information or its advice changes. Michael Gable and Novus Capital Limited and each of their respective officers, agents and employees exclude to the full extent permitted by law, all liability of any kind, in negligence, contract, under fiduciary duties or otherwise, for any loss or damage, whether direct, indirect, consequential or otherwise, whether foreseeable or not, to the extent arising from or in connection with this website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

After the XJO’s sizeable short squeeze last week and positive move on Friday night, the market barely rolled out of bed today. The market spent the majority of the day in an 8 point range to close up 11 points or 0.25% to 4424 on meagre volume of $2.7B shares. To put that into perspective, the average volume throughout the month of November last year was $4.4B.

The market again focused on issues overseas as we had few local leads to direct our market in today’s trade. The resumption of a meeting between Eurozone finance ministers later this evening regarding the form of Greece’s bailout package will be the third attempt at resolving the issue. This is the imminent focus for markets in addition to the lingering fiscal cliff issue where little tangible headway is being made. A resolution on the Greek issue at least will provide some certainty for markets and should keep things bubbling along. Investors are mostly of the view that the US will do what is best (most popular) for it and manipulate the current fiscal stance to avoid tumbling off the cliff.

Market action was dominated by the cyclicals with the likes of BHP Billiton ((BHP)) up 0.7%, Fortescue Metals Group ((FMG)) up 3.3% and Bluescope Steel ((BSL)) up 2%. Other notable moves included Fairfax Media Limited ((FXJ)) up 4.65% and Qantas Airways ((QAN)) up 2.75%. Financials were mixed with Commonwealth Bank ((CBA)) up 0.3% and Westpac ((WBC)) down 0.7%.

Whilst barely a blip on the globe’s radar, the NZX50 (New Zealand’s Equities Index) hit a 5 year high today.

The markets newest small cap darling Sirius ((SIR)) got hammered 22% today on a disappointing exploration update. Sirius has had a monumental rise from 5c to over $3 in just 3 months on a significant Nickel Sulphide discovery and was a big talking point for the day.

DOW futures are pointing to a weaker opening for Wall street down 37 points
 

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no cost consultation and portfolio review or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We cannot assist investors who aren’t classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Weekly Broker Wrap: Will The Builders Come To Save The Day?

By Andrew Nelson

With resources companies no longer supplying Australia the same levels of GDP contribution they have been over the past few years, market watchers have become increasingly concerned about what might fill the gap. There’s been a lot of hope hung ‘round the necks of building supply companies, with a cyclical upturn now being prayed for in both the US and Australia.

If you’re a subscriber to the Building And Construction Can Replace The Miners For A While Theory, then analysts at Goldman Sachs have a bit of good news for you. That’s unless you’re one of those hoping for help from the resource sector Construction Industry, in which case there’s really not that much good news. But in terms of residential and commercial markets, Bob may soon be all of our uncles once more, with builders building, building supply companies supplying and maybe soon even resources company will be providing resources for materials companies to turn into more materials. And so it goes....

As I was saying, Goldman Sachs have done a bit of a whip ‘round of the US housing market. While it may be only a piece of Construction Can Replace The Miners For A While pie, it’s one of the biggest pieces as far as international materials companies are concerned. So good news from there is pretty much good news for all.

Last week, the US Census bureau published its US housing starts numbers for October, with total monthly starts 3.6% higher than September and up 41.9% on last October. More importantly this is the highest reading since July 2008, the month before we all learned what GFC meant. Here’s the hitch, much of the upside came from an 11.9% monthly increase in multi-dwelling starts. Single-family housing starts, which the broker finds a more reliable housing activity indicator was pretty much unchanged on the prior month, although still up 35.3% on last October.

US building permits for October were also strong, with the read up 29.8% on this time last year, with single-family housing permits up 2.2% on last month and 26.6% over the last 12-months. Data from the US National Association of Home Builders is even more promising, with the index posting a five point increase to 46. The broker notes this is the seventh consecutive monthly gain and is now at its highest level since May 2006. According to the NAHB, “builders are reporting increasing demand for new homes as inventories of foreclosed and distressed properties being to shrink”.

Says Goldman Sachs, “This data continues to suggest a recovery in the US housing market.”

To give you an idea about a read-through for Australian investors, Goldman’s points out that a 5% change in US housing starts has a 3.3% and 3.0% impact on its forecast FY13 earnings for Boral ((BLD)) and James Hardie ((JHX)), respectively.

Meanwhile, analysts at Deutsche Bank have some good news about the domestic insurers, noting they have been enjoying an extended period of reserve releases on the back of both tort and CTP reforms. While the broker admits an eventual normalisation of releases is inevitable, currently conservative reserving practices and low superimposed inflation in key long-tail classes indicate releases should actually exceed guidance in FY13.

However, Deutsche warns investors to not get too carried away, noting that when combined with the potential for below budget catastrophe outcomes and investment gains from equities and credit spreads, management may look to boost capital strength via higher risk margins, rather than giving the profit back to investors. Either way, support from reserves adds to the broker’s view of attractive upside risk to consensus margin expectations for Insurance Australia Group ((IAG)) and Suncorp ((SUN)). QBE Insurance ((QBE)) comes in a distant third, given a more stretched balance sheet, more limited pricing power and less of a benefit from both conservative catastrophe budgets and reserves.

Switching to the banks, Deutsche notes the US Federal Reserve, the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency, citing industry calls to delay the implementation deadline, announced they do not expect any of the US Basel III proposals to become effective on the global implementation deadline of 1 January 2013. Further, the US agencies want a new and more considered deadline, although there was no schedule laid out for any new draft proposals. European lawmakers have also jumped on the bandwagon, saying they doubt anyone will meet January deadline, noting the same concerns as the US and the fact there seems to be no consensus on some of the major issues.

Analysts at CIMB believe Australian banks will take a conservative approach to capital given the volatility now inherent within Basel III requirements. While the broker is comfortable about the amount of provisioning being taken on, it sees limited opportunity for capital management in FY13. The year after, once positions are constructed and paid for, capital management should begin once again begin in earnest. Fingers crossed.

Analysts at Goldman Sachs also touched on the domestic telco industry last week, providing insight on how we’re going on getting a viable third operator to compete with the seeming duopoly being built by Telstra ((TLS)) and Optus ((SGT)). Anyone following this sector can likely tell you all about the beating that has been taken by Hutchison Telecommunications ((HTA)) in its bid to try and keep up with the bigger boys. And there’s still a long way to go, notes the broker.

What Goldmans believes needs to happen is parents Vodafone and Hutchison Whampoa will have to invest some serious capital to fund the company’s much touted multi-year turnaround strategy and to arrest the ensuing free cash burn. There are three steps the broker sees: $2bn in network investments, fixing the cost base, and then investing in customer acquisition. A far from impossible task, but it will take several years.

In the meantime, predicts Goldman, Telstra will continue to take advantage in the near term given its strong competitive positioning. The broker has even been kind enough to spell out the upside, seeing respective 1.1%, 2.1% and 2.2% increases to FY13-15 EPS forecasts and a higher price target. Longer term, however, the broker believes there will be an ever increasing risk of some stiff, price based competition, especially given the presence of a subscale Vodaphone (Hutchison).
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

Australian shares had a positive session following solid leads from Wall Street overnight. The XJO had a lacklustre opening before finding its feet from midday and posting a mildly solid gain of 24 points or 0.56% to 4385. A raft of mixed news throughout the session failed to slow the buying which was still comparatively weak on a combined traded value of $3.7bn. The news overnight was hardly a revelation but markets globally managed to push out very strong gains, US volumes were rather mild to boot. Moody’s came out early in our session to announce they had downgraded Frances sovereign bond rating by one tick to Aa1 from AAA citing economic challenges, a loss of competitiveness and a lack of flexibility in its labour and services markets. This wasn’t a huge surprise to the market and barely caused a ripple on the XJO or US futures, we’ll have to wait to see will effect Euro markets overnight.

The AUD and CAD joined the ranks of the USD, JPY, GBP, Euro and CHF as the two newest currencies to be given reserve status by the IMF. Greg Peel goes into greater detail with a note dedicated to the news but the ramifications of this change are significant. The AUD is already the fourth most traded currency globally and this only further affirms its status as a must have currency for reserve banks around the world. The IMF has encouraged member nations to include the AUD  and CAD in their reserve holdings from 2013.

There are two circles of thought around the AUD. The first with their more traditional ‘commodity currency’ viewpoint, believe the AUD is overvalued based on China’s flattening demand for our resources and will likely fall in the near-term. The second, more progressive camp have worked out that there are more complex forces at play these days and the foreign appetite for our AAA rated bonds is a bigger driver for support of the AUD. A forex dealer friend of mine who works at one of the big 4 has long commented on the huge and growing holdings of AUD by foreign reserve banks, with the latest tick of approval by the IMF this will only add to their argument that a higher AUD, probably above parity, is here for the long haul.

RBA minutes out today showed the RBA board members  “considered further easing may be appropriate in the period ahead”. You got to love the way these guys phrase things. Despite the language seeming pretty vague to most people, the market read this to mean that additional rate cuts in the coming months are highly likely. The minutes went on to say, further effects of the current monetary policy stance are yet to be observed, meaning they may want to see more evidence before deciding to cut rates. The minutes also noted that the US economy continued to expand at a moderate pace and Chinese growth had stabilised. They highlighted the Euro area crisis as a downside risk to global growth. Trade in the AUD was directionless all day, despite the news from the IMF and the RBA minutes.

Strong trade in the cyclicals lead the market with standout moves from Fortescue ((FMG)) up 16 cents or 4.2% to $4.01 on no movement in the Iron Ore price (Spot currently at US$122). Mining services middle-weight Cardno ((CDD)) was down 19.2% to $6.30 after warning shareholders that market conditions were more difficult than anticipated and forecasting NPAT to be in line with 1H 2012 numbers.

DOW futures are down slightly into the afternoon -10 points.
 

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no cost consultation and portfolio review or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We cannot assist investors who aren’t classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

The Aussie market was higher today on hopes of a move toward a resolution in the fiscal cliff issue that has plagued markets since US elections 2 weeks ago. The Australian market was down 2.8% last week and was ready for bargain hunters to pounce on any slightly more positive news from offshore. After a relatively quiet morning, the ASX200 found some momentum after lunch to finish the day up 25 points or 0.6% to 4361. US House Speaker, John Boehner described the talks with both parties as “very constructive” which was enough for the DOW to reverse a 70 point loss to close the day up 40 points. Volumes were exceptionally light across the board on the ASX signalling a serious lack of confidence in market and economic conditions. Total turnover for the day was just $3.2B. The uptick in the index was led by the cyclicals and bigger miners in particular with BHP Billiton ((BHP)) paring early gains to close the day up 28 cents or 0.85% to $33.21, Newcrest Mining ((NCM)) pushed  higher for the second trading day in a row, bucking a month long losing streak to close the day up 43 cents or 1.75% to $25.00, the big 4 banks were mixed and financials were generally weaker over the day.

You know we’re in the clutches of a nothing day when the most talked about corporate news of the day is about a potential LBO (leveraged buy-out) from a divisional manager of a mid-cap clothing company. Billabong ((BBG)) rose as much as 15% intraday on news that the manager of the company’s US division was investigating the possibility of arranging a leveraged buy-out for the company. This follows to failed takeover attempts for BBG by TPG and Bain Capital earlier in the year. BBG closed the day up 7.5 cents or 10% to $81.50.

The other bit of news came from oil and gas heavyweight Santos ((STO)) which announced a discovery of a significant new oil and gas prospect at its Browse Basin project offshore Western Australia. STO intersected a significant gas column at its Crown 1 prospect with a combined net pay of 61 metres prior to hitting target depth of over 5,000m. Whilst the find looks pretty special, it’s commerciality is yet to be demonstrated and we all know how difficult the oil and gas game is. The odds are generally stacked against you, particularly at that sort of depth. STO closed on its highs up 3.9% or 42 cents to $11.30.This seemed to filter down to the other oil and gas majors, both with and without Browse Basic interests with Woodside Petroleum ((WPL)) moving up 35 cents or 1% to $33.56, Origin  Energy ((ORG)) rose 41 cents or 4.2% to $10.25 and Oil Search ((OSH)) climbed 17 cents or 2.5% higher to $7.03.

The bargain hunters also piled into Lynas Corporation ((LYC)) today after weeks of heavy selling, pushing the stock up 8 cents or 14.4% higher to 63.5 cents on no public news from the company.

European markets are set to open higher following positive leads from Asian markets and the US on Friday night. Tuesday’s extraordinary meeting of euro-zone finance ministers will aim to address Greece’s two year financing issue that had been plaguing markets the last fortnight.  The DOW is also set for a positive start with the futures sitting up 22 points.
 

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no cost consultation and portfolio review or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We cannot assist investors who aren’t classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Weekly Broker Wrap: Bank Assessment And Telco Calls

By Andrew Nelson

All in all it was a pretty good bank reporting season just gone. However, analysts at Deutsche Bank point out that there were numerous one-offs and non-recurring bonuses that made things look a little better than they were. Stripping these out give us a slightly different picture as to who did the best and who did the worst.

Looking at headline results, the broker notes growth in the Australian and NZ franchises of Australia’s major banks looked reasonably strong in 2H12 at an average of 5-11% annualised. On these numbers, Westpac ((WBC)) posted the strongest growth followed closely by National Australia Bank ((NAB)).  Conversely, ANZ Banking Group ((ANZ)) seems to have posted the weakest growth at a headline level.  However, Deutsche points out that the drivers behind that growth were very different, with NAB relying heavily on low costs, while WBC actually posted stronger revenue growth.  

Thus, NAB takes the biggest hit from stripping out the chaff, with the broker noting that in the absence of a mortgage re-pricing catch up, markets income, fee re-pricing and the non-payment of executive bonuses, the 2H result was actually a flat over the 1H.  This leads the broker to conclude the momentum that is assumed in the bank’s domestic performance is probably not as the headline numbers suggest.

On the other hand, the broker’s analysis points to ANZ as having had the strongest underlying performance, with Australian and NZ franchises booking 5% annualised growth versus Westpac at 1.2% annualised growth. However, the broker gives extra credit points to the latter, noting WBC posted the result despite undertaking some balance sheet restructuring over the period.  Unsurprisingly, NAB comes in at the bottom booked with adjusted underlying growth at 0.2%.

Over the end of the period, analysts at UBS conducted a survey of bank Loan Officers in order to gauge the current trend of underwriting standards, credit demand, loan growth and lending margins.

Firstly, respondents noted that there has been an ongoing tightening of underwriting standards in both mortgages and SME lending. While the broker believes this is mainly due to re-pricing efforts in the mortgage sector, it sees a little bit more to be concerned about in the SME space. Respondents indicated concerns about the general economic environment and worries about the housing market as the main driver for tightening lending conditions to small businesses. UBS points out this is the first shift towards restricting SME lending since 1H10.

The tightness also spread to larger business customers as well, with loans to the corporate sector also showing some signs of restriction, especially in retail property. The broker notes this tightness emerged as both stricter collateral requirements and a focus on loan maturity.

Despite a slowly decreasing willingness to lend, the broker points out that the general opinion in the sector is that credit growth is expected to come in at 5% next year, which is up from the 4% indicated in the last survey. There were fairly conflicting responses on asset quality, with expectations ranging from further improvements to deteriorations.

Ultimately, UBS expects bank prices will remain volatile, torn between outbursts of optimism when the clouds part to show some sunshine, which will be offset by the realities of a struggling Europe, the US Fiscal Cliff and what are still anaemic levels of global growth. As such, the broker believes the fair value range for the banks is at around 1.4x-1.8x book value. Right now, the Big-4 are sitting at the top of this range on the back of the hunt for apparent safety and yield. Yet despite the yield support on offer, UBS is growing increasingly concerned about valuation and thus sees better investment opportunities elsewhere, especially in international markets.

BA-ML also took an angle on banking last week after holding a number of mini-conferences around Asia. The big surprise, notes the broker, was the extent of bullishness towards equities, Asia, and HK/China.  In fact, 58% of respondents believe equities will be the best performing asset class in 2013. Only 14% felt that way about gold, and only 13% for corporate credit. In terms of equities, Asia is expected to be the best performing region, with the US coming in a distant second.

94% of survey respondents see a soft landing for China, with worries about a hard landing seeming to have disappeared.  On the other hand, earnings growth has remained a concern. It seems about half of respondents believe 2013 earnings growth forecasts of 8% are about right, while 42% of respondents  believe earnings growth is at least 10% too high. Still, about 75% of investors surveyed believe the China H-share market will rally into year-end and then continue into next year. 60% expect HK/China to be the best performing country in the region versus Australia and India coming in the lowest.

Switching lanes back to the domestic front, analysts at JP Morgan see a softer, if not more rational market for domestic telecommunication providers. The view is predicated by the recent result from SingTel’s ((SGT)) Optus, which reported some reasonably weak numbers and took the knife to guidance. Revenue guidance for the  year ending March 13 was cut from low single digit growth three  months ago to a mid-single-digit decline, although the operating earnings guidance was maintained at flat.

The broker has its doubts about flat earnings, however, noting things don’t really seem to have improved that much over the last three months. And with things about the same, JP Morgan wonders how margins could be supporting even flat earnings in the face of weaker general trends.

Thus, the broker reads this shift in guidance as likely indicating an increasing emphasis on earnings over market share, with the company not looking to fight revenue headwinds, but rather targeting margins. This would mean the loss of subscribers in Mobile given Telstra’s ((TLS)) network lead, with Optus using price to shift customers off pre- to higher margin postpaid accounts.

While for Optus this amounts to a struggle, for Telstra it is a clear positive, says the broker. In fact, current trends point to Telstra picking up 760k subs this half versus 606k in the June half, with the iPhone5 launch adding further upside risk to the numbers. Analysts at Goldman Sachs agree, also seeing a strong quarter for Telstra on the back of a weak Optus performance in the mobile market.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

The World Invests In Australia

-Foreign fund flows up strongly since tax changes
-Asia-Pacific accounts for majority of MIT flow
-Pension and sovereign funds now a big proportion
-Govt should implement more reform


By Eva Brocklehurst

The flow of funds into Australia via managed investment trusts (MITs) has risen strongly since taxation changes were implemented by the Australian government. This has prompted calls for the government to stiffen its resolve and implement the rest of the findings of the Johnson Report, handed down in 2010 as part of a federal commitment to secure Australia as a financial services centre. A two-year study, subsequently undertaken by the Financial Services Council and The Trust Company, called Australian Investment Managers Cross-Border Flows Report (FSC report), has now been released and highlights how successful the implementation of the taxation changes was for increasing overseas sourced funds.

A key tenet of the Johnson Report was the reduction of withholding taxes. The withholding tax rate on certain distributions of income to non-residents by Australian managed funds was reduced to 7.5% by July 2010, making it one of the lowest rates in the world. The FSC report finds the flow of funds into Australia through managed investment trusts increased significantly (54%), from $21.89 billion at 1 January 2010 to $33.60 billion at 31 December 2011. The report concludes that Australia has arguably the most efficient and competitive financial sector in the Asia-Pacific region but there is more than can be done to maximise the benefits. The report also found that Asia-Pacific was by far the biggest contributor of foreign flows into Australian managed funds.

Asia-Pacific provides 68% of fund sourcing and, in Australian dollar terms, had the largest increase over the study period - up $4.7 billion (33%). Europe was the second largest contributor accounting for 13.2% of total fund flows, followed by the UK at 9.1%. In terms of asset classes, Australian property, Australian fixed interest and Australian shares were the top three for flow increases, with respective funds growth of 47.9%, 44.2% and 24.7%. The study found overseas fund managers were the most prevalent investor type at 55% of assets in the sample, followed by overseas pension funds at 18%. Investment by overseas sovereign funds almost trebled over the two years - to $1.092 billion.

The authors of the FSC report believe that the proportion of funds sourced from overseas, especially Asia-Pacific, has the potential to increase exponentially if the right policy settings are in place. They have called on the government to expedite implementation of  key recommendations of the Johnson Report. At the time, the government supported nearly all of the 19 recommendations, including the introduction of an investment manager regime and the development of what was called an Asia Region Funds Passport (ARFP).

The FSC report shows that, while fund managers represent the single largest type of foreign investor in Australian MITs, the pension and sovereign funds together contribute a considerable proportion of foreign fund flows. The authors believe it is essential that Australia develops policies to grow the existing (and increasing) level of interest from these investor types and this would be served by the implementation of a full investment manager regime that covers pension and sovereign wealth fund investors. Moreover, the authors say, given Asia-Pacific is the major contributors of foreign fund flows into Australian MITs, the need for an ARFP is self evident. An ARFP would streamline the ability of Australian-based fund managers to export their services and at the same make it easier for Asian investors to access Australian based funds managers.

Other recommendations of the Johnson Report called for collective investment vehicles and removal of state taxes and levies on insurance. The FSC report authors believe that increasing the breadth of allowable collective investment vehicles, with an appropriate governance framework, would allow Australian investment managers to take advantage of the interest shown by investors who are unfamiliar with current schemes or would prefer to invest in a different type of legal entity.

As for removal of state taxes and levies on insurance, given these jurisdictions are crying poor right now, this has probably been placed in the too-hard basket for now. 
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

What Happened Today?

Max Ludowici of 708 Capital is visiting clients today and as such is unable to produce his regular report.

By Greg Peel

Well nobody saw that coming.

After a non-event, holiday-affected session on Wall Street and no movement in SPI futures overnight, a quick poll of protagonists this morning would not have rendered anything close to predictions of a 59 point (1.3%) fall in the ASX 200 to 4390. So what on earth just happened?

Ask five broker/analysts and you'll get five different responses. The usual suspects are there -- worries about the US fiscal cliff and worries about Europe (specifically the Greek bail-out tranche). That's what you'll hear on the nightly news tonight. However the Australian market has had a few sessions now in which to respond to the fiscal cliff and to date movements have not bee pronounced as in the US, and in the US there is a growing feeling some compromise might just be reached. As for Greece, EU officials have been saying for a while now that a decision on the Greek bail-out tranche will not be immediately forthcoming, so any fear over Greece is hardly "new news".

NAB is release a shocker of a business conditions and confidence survey this morning (See Oz Business Conditions Worst In Three Years) which can realistically be assumed to have added to weakness, but not realistically assumed to have been worth 1.3%.

QBE Insurance ((QBE)) was slapped another 7% today after a trashing yesterday as analysts warned investors away from the stock (See Brokers Cautious On QBE) but one swallow does not a summer make. Indeed, Incitec Pivot ((IPL)) bucked the trend and bounced 4% today following a surprisingly positive profit result, if we're looking at single stocks.

One might argue that the 1.3% fall represents a sort of delayed reaction, build up of negativity, which became a slippery slope. The market opened only slightly weaker but took a turn for the worst mid-morning and just never looked back. Bridge Street has underperformed Wall Street all year but has actually outperformed recently and did not fall as much last week on the election response. Is this just a necessary adjustment? A bit of a capitulation shake-out?

The answer may be even simpler. The best explanation I've heard -- albeit Chinese whispered -- is that a big Asian portfolio sell order hit the market today and met a degree of nervousness and not a lot of volume support. So down we went, without much resistance. These things happen every now and again, from the US or elsewhere or even sourced locally. And when they do they often take out technical levels, which in turn wakes up computers and begets more selling, and hence we see snowballing. A couple of technical levels were taken out today.

A look at the screens also shows the euro down 0.2% since this morning and Dow futures down 70 points right now. The two usually go hand in hand. The bottom line is there's not a lot to feel positive about right now, even though good news could jump out at us at any point (cliff, Spain). In the interim, limbo period, down is easier than up.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.